§1667b Lessee’s Liability on Expiration or Termination of Lease

Summary

If a lease says the lessee must pay an amount at the end based on an estimated residual value, that estimate must be a reasonable guess of the property’s fair market value when the lease ends. If the estimate is more than three times the lease’s average monthly payment above the actual value, the law treats that estimate as unreasonable and not in good faith. The lessor cannot collect that extra amount unless the lessor sues and wins. If the lessor brings a legal action about the excess, the lessor must pay the lessee’s reasonable lawyer fees. Damage beyond normal wear and tear or excessive use can explain a higher shortfall, and a lease may set fair wear-and-use rules. A lessee and lessor can still agree after the lease ends to settle the difference. A lease may include late, default, or early-termination charges, but they must be reasonable given the harm, proof problems, and any difficulty fixing the loss another way. At lease end, the lessee may pay for an independent appraiser agreed to by both sides; that appraisal is final and binding.